The office is dead! Long live the office!

3 June 2020

By Nadav Livni, Fund Manager

For the first few weeks of lockdown, when working from home was still a novelty and fear of the virus was at its peak, there was a feeling (though not here!) that the end of the office was nigh.

However, I sense now that many people have become fed up of working alone and crave a return to the office. They miss the culture, the community and the collaboration. The question, then, is less about the future of offices and more about how they will adapt to a coronavirus world, particularly in terms of health and wellbeing (a theme that I shall be returning to in future blogs).

Therefore, I am reassured that our long-time strategy of investing in offices has not been derailed and I am absolutely convinced that our focus on investing in key regional cities is the right one. I was equally convinced that the office sector would bounce back after the tragic events of 9/11 and after the global financial crisis, and it did.

This month, the government reaffirmed its pre-Covid commitment to wipe out regional inequality through its “levelling-up” agenda by creating a new Northern Powerhouse “growth board”, potentially led by Jim O’Neill, the former Goldman Sachs economist and Treasury minister, as the FT has reported here

This important move, which follows the government giving formal approval for construction work on the HS2 rail project to begin, is vital to address the secular trend of wealth disparity between London and regional cities, which has been neglected by successive governments.

A key factor of our regional investment thesis is based on research showing steady and growing occupational demand as the economy recovered (before Covid), with limited regional offices having been constructed in the last decade as well as existing stock removed through permitted development to residential.

Our forecasts suggests that supply of new regional offices will remain constrained, whereas occupational demand will be driven by organic growth from local occupiers as well as multinational corporates recognising the benefits of “north-shoring” (with regional cities offering a highly skilled talent pool, access to top universities and research institutions, transportations hubs, attractive quality of life and significantly lower costs).